Macao Faces Compliance Risks as Global Banks Ditch Correspondent Banking Relationships

A Growing Compliance Risk for Macao

The Macao Special Administrative Region is facing a growing compliance risk due to the increasing trend of global banks severing correspondent banking relationships. This shift, also known as “de-risking,” is driven by concerns over anti-money laundering (AML) and terrorist financing risks.

De-Risking: A Growing Concern for Macao

Many financial institutions have opted for de-risking strategies in recent years, terminating business relationships with entire regions or classes of customers rather than managing potential risks. This approach has had a devastating impact on Macao’s correspondent banking sector, leading to:

• Financial exclusion: Many businesses and individuals are being cut off from access to international financial services.
• Reduced transparency: The lack of clear regulatory expectations for customer due diligence is exacerbating the issue.
• Increased exposure to money laundering and terrorist financing risks: De-risking practices are deemed not in line with the Financial Action Task Force (FATF) Recommendations.

The FATF Guidance: A Step Towards Addressing Compliance Risks

In June 2015, the FATF clarified its guidance on applying a risk-based approach to correspondent banking relationships. In collaboration with the Financial Stability Board and other international bodies, the FATF developed a guidance document aimed at:

• Clarifying regulatory expectations: Providing clear guidelines for banks to conduct customer due diligence in cross-border correspondent banking relationships.
• Addressing compliance risks: Ensuring that Macao’s financial sector remains compliant with global AML standards.

By implementing these measures, Macao can mitigate the compliance risks associated with de-risking practices and maintain its position as a key player in international finance.